It is generally seen that there is confusion among taxpayers about maintenance of books of accounts under Income Tax Act like who is required compulsorly to maintain the books of accounts and for how many years one has to keep his books of accounts. Some views are expressed on this topic as follows:

Maintainence of books of accounts by Professionals: Section 44AA of Income Tax Act and rule 6F of Income Tax rules deal with the provisions regarding maitenance of books of accounts under Income tax Act. As per section 44AA(1) read with rule 6F the persons carrying on any of the profession as mentioned below are required to maintain books of accounts and other documents as may enable the assessing officer to compute his total income, if yearly gross receipts of the profession exceeded Rs 150000

1) Legal

2)Medical

3)architectural

4)engineering

5)accountancy

6)technical consultancy

7)interior decoration

8)authorised representative

9)film artist

10)any other profession as is notified by the board

When no books of accounts are required to be maintained by professionals covered u/s 44AA(1): Proviso to Rule 6F(1) provides that if the gross receipts of a profession donot exceed Rs 150000 in any one of the three years immediately preceding the previous year or where the profession has been newly setup in the previous year,his total gross receipts in the profession for that year are not likely to exceed the said amount, then such professional need not to maintain any books of accounts as mentioned in sub rule 2 of rule 6F.

It means that if the gross receipts of a profession exceed Rs 150000 in all the three years preceding the previous year only then the books of accounts will be required to be maintained, if the gross receipt exceed the prescribed limit in the two preceding years but not in the third preceding year then there will be no need to maintain books of accounts as contemplated in sub rule 2 of rule 6F.

Maintenance of Books of accounts by other Persons covered u/s 44AA(2): In relation to any other persons engaged in any other profession or carrying on any business other than section 44AA(1), the requirement of compulsory maintenance of books of accounts applies if- either the income from business or profession exceeds Rs 120000 or the turnover or gross receipts exceed Rs 10 Lakhs in any one of the three years immediately preceding the previous year.

When no books of accounts are required to maintained by other persons covered u/s 44AA(2): If the Income or the gross receipts or gross turnover of a person carrying on business or profession other than profession as mentioned u/s 44AA(1) donot exceed in any one of the three years preceding the previous year then no books of accounts will be required to be maintained u/s 44AA(2).

Presumptive Income scheme: The persons who are filling their return of income under the presumptive income scheme like under section 44AD or 44AE or 44AF etc are not require to compulsorly maintain books of account u/s 44AA. However where the profits and gains from the business are deemed to be profits and gains u/s 44AD or 44AE or 44AF or 44BB or 44BBB as the case may be, and the assessee has claimed his income to be lower than the profits or gains so deemed, then the books of accounts will be required to be maintained u/s 44AA.

Maintainence of books of accounts in case of new 44AD section: A new clause IV has been added to sub section 2 of section 44AA w.e.f. 01-04-2011 which provides that where the profits and gains from a business are deemed to be profits and gains of the assessee under new section 44AD which is also applicable w.e.f 01-04-2011 and the assessee has claimed such income to be lower than the profits and gains so deemed i.e below 8% and the income of the assessee exceeds the maximum amount which is not chargeable to income tax during previous year then in such case such person shall keep and maintain such books of accounts and other documents as may enable the assessing officer to compute his total income.

Thus it means that if a person declares his income below the 8% of his total turnover or gross receipts as required u/s 44AD which is applicable w.e.f 01-04-2011 and his income is above the exempted limit then he will have to compulsorly maintain his books of acounts. But if his total income is below the exempted limit and profits are also declared below 8% of gross turnover or gross reciepts then he will need not to maintain compulsory books of accounts.

What books of accounts are required to be maintained by persons covered u/s 44AA(1): As per Rule 6F(2) the following books of accounts and documents are required to be maintained:

1) cash book,

2)Journal, if the accounts are maintained as per mercantile system of accounting,

5)original bills for expenses exceeding Rs. 50 and payment vouchers for petty expenses. However in a case where the cash book maintained by the person contains adequate particulars in respect of the expenditure incurred, then vouchers are not neccessary in respect of expenses upto Rs 50.

Persons engaged in medical profession are, in addition, required to maintain daily case register in the prescribed proforma (Form No. 3C) and inventory, as at the begining and end of the year, of stock of drugs, medicines and other consumables accessories used for the purpose of the profession.

Books or books of accounts have also been defined u/s 2(12A) as including ledgers, day-books, cash books, account-books and other books, whether kept in the written form or as print-outs of data stored in a floppy,disc, tape or any other form of electro-magnetic data storage device.

Document has been u/s 2(22AA) as including an electronic record as defined in clause (t) of sub section (1) of section 2 of the Information Technology Act, 2000.

For how many years books of accounts are required to be preserved: Every year the the record of books of accounts grows up and the cupboards filled up more and more. Every assessee wants to know for how many years he should keep the records of his books of accounts.

Rule 6F(5) provides that the books of accounts and other documents are to be kept for atleast 6 years from the end of relevent assessment year. That means from the assessment year 2009-10 one should keep books of accounts upto the assessment year 2003-04 i.e books of accounts of financial year 2002-03.

The time limit for issuing notices for assessment or reassessments have been prescribed u/s 149, after the end of such prescribed time no notice can be issued and no assessment can be framed, therefore the assessee will not need books of accounts of the concerned year. Keeping in mind the time limit as provided u/s 149 for issuing notice the following suggestions are made regarding preservation of books of accounts:

1) If the assessee has made an appeal against any assessment order of any year then the books of accounts of such year should be preserved untill the final decision of such appeal

2) Where the assessment in relation to any Year has been reopened u/s 147 within time u/s 149, in such case all the books of account and documents shall continue to be kept till the assessment so reopened has been completed.

3)Books of accounts for only 7 financial years should be preserved. Therefore the taxpayers should keep books of accounts of only financial year 2002-03 and onwards.

Where the books of accounts should be kept: The current year's books of accounts should be maintained and kept at the principal place of business or profession as per Rule 6F(3). There is no specific rule as to where the books of accounts of earlier years should be kept.

Consequences for faliure to maintain books of accounts:Faliure to maintain books of accounts and other documents or to retain them as required u/s 44AA attracts penalty of Rs. 25000 u/s 271A. The penalty can be imposed by the assessing officer or CIT(Appeal).

Important decisions: The Income Tax Appellate Tribunal Delhi in its decision (1998) 97 Taxmann 273(Magzine)/60T.T.J. 278 has held that there is no rule made to the effect that which books of accounts are required to be made by the persons carrying on business covered u/s 44AA(2), therefore if the assessee has kept the details of Incomes and expenditures then no penalty shall be levied u/s 271A.

Similar decision was made by Amritsar bench of Tribunal in case of Sujan Singh v. AO [2007] 110 TTJ (Asr.) 818 wherein it was decided that Rule 6F has not been made applicable to the persons carrying on business or Profession other than those mentioned u/s 44AA(1) and covered u/s 44AA(2). The case of the assessee falls u/s 44AA(2), as the assessee was carrying on a business of poultry farm. the board has not specified or notified the books of account to be maintained by persons covered under sub-section 2 of section 44AA.Therefore, rule 6F is not applicable to the case of the assessee- ITO v. Dinesh Paper Mart [1999] 64 TTJ (Nag.) 674 : [1999] 70 ITD 274(Nag.) relied on.

After leving penalty for non maintanence of books of accounts, no penalty can be levied for not getting the books of accounts audited: Guwahati high Court has held in its decision (1996) 222 ITR 691 that if the penalty u/s 271A has been levied on an assessee for non maintanence of books of accounts then thereafter no penalty shall be levied u/s 271B for not getting the books of accounts audited.

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